Debt-laden companies across Europe, Middle East and Africa are facing a $500bn refinancing scramble in the first half of 2024. This challenge could lead to the demise of many zombie businesses, despite the expected peak in interest rates offering some relief. The value of company loans and bonds maturing during this six-month period is higher than any other equivalent period until the end of 2025, according to analysis by restructuring consultancy Alvarez & Marsal.
Weaker, smaller businesses are seeking new private loans and public debt deals just as government borrowing costs are rising globally. Failure to secure affordable cash could result in insolvencies and job losses.
The report says that signs of distress are already evident, with corporate insolvencies in England and Wales up 19% in August compared to the previous year. The Bank of England has warned lenders not to underestimate the risk of corporate loan defaults. The refinancing task cannot be delayed indefinitely, and the impending stricter capital rules from 2025 are expected to limit support for companies in need of fresh funding.
Julie Palmer, Partner at UK restructuring firm Begbies Traynor said “Interest rate rises are becoming more and more of an issue for companies, particularly those zombie businesses that have been holding on with a sustained period of low interest rates but just barely able to service their debt.”